Blog Editors

Employee Benefits Group

After nearly a month of regulatory machinations and behind-the-scenes lobbying, the Department of Labor has released a proposed rule that would delay the “applicability date” of its recently enacted “conflict of interest” (or “fiduciary”) regulation (the “Fiduciary Rule”). The 60-day delay in the applicability of the Fiduciary Rule would have only an indirect effect on employers, but is of great interest to investment advisors and other service providers.

On Friday, February, 3, 2017, President Trump issued a Memorandum directing the Secretary of Labor to “re-examine” the Department of Labor’s final regulation defining “fiduciary” investment advice (sometimes referred to as the “Fiduciary Rule” or the “Conflict of Interest Rule”), and to consider whether the Rule should be revised or rescinded. The Rule, which significantly expands the circumstances under which an individual becomes a “fiduciary” by reason of providing investment advice for a fee, was finalized in April of 2016, and technically became effective last July, but was drafted such that its provisions generally do not become “applicable” to financial advisers until April 10, 2017.

In December, the Division of Investment Management of the Securities and Exchange Commission issued Guidance Update No. 2016-06. The Update provides disclosure and procedural guidance to address potential issues for mutual funds responding to the Department of Labor’s adoption of the Conflict of Interest Rule. To address concerns by financial intermediaries that variations in mutual fund sales loads may violate the Rule, Funds are exploring various options, including changing fee structures and creating new share classes. Such changes may impact fiduciary decisions regarding a plan’s investments and compensation arrangements.

After years of effort, the Department of Labor released final rules on April 6, 2016, that will substantially alter the way investment advice is provided to ERISA plans, their participants, and even non-ERISA IRAs.

The United States Supreme Court gave considerable comfort to defined contribution plan participants – and their lawyers – who sue plan fiduciaries for failing to keep track of plan investment options. In a unanimous decision handed down on May 18, 2015, the Court held in Tibble v. Edison International that ERISA fiduciaries have a “continuing duty” to monitor investment options, and that plan participants have six years from the date of an alleged violation of that duty to file a lawsuit against the plan’s fiduciaries. This ruling significantly undercuts the utility of a statute of limitations defense that had been successfully deployed by plan fiduciaries in previous cases, and creates fertile ground for more litigation.

The well-publicized cyber-attack on Anthem, Inc.’s information technology system may require employers to take prompt action to protect the rights of their health plan participants. Although neither the scope nor the cause of the security breach has yet been determined, the attack has been described as both “massive” and “sophisticated.”

The Department of Labor (“DOL”) has released an informal set of tips for ERISA plan fiduciaries to consider when selecting and monitoring target date funds (“TDFs”) for their 401(k) plans. Fiduciaries that offer TDFs as an investment option under their 401(k) plans should review these tips and incorporate them into their investment review process.

In Borroughs Corp. v. Blue Cross Blue Shield of Michigan, a federal trial court held that a third-party administrator of self-funded employer health plans was an ERISA fiduciary. Moreover, because the TPA had not disclosed certain of its fees that it deducted from plan assets, it was held to have breached its fiduciary duty under ERISA. Although this decision is somewhat surprising in finding the TPA to be a fiduciary, it may spur plan sponsors and TPAs to reexamine their funding arrangements and service agreements.

Operational errors in administering a retirement plan not only threaten the plan’s “qualified” status under the Tax Code, but can also result in fiduciary liability under ERISA for those who are responsible for the errors. As a Massachusetts employer recently learned, however, correcting those administrative mistakes can eliminate the risk of fiduciary liability under ERISA. (Altshuler v. Animal Hospitals Ltd., (D. Mass. Oct. 31, 2012)).

In McCravy v. Metropolitan Life Insurance Company, an ERISA plan continued to accept life-insurance premiums for a participant’s dependent daughter after the daughter was too old to be covered as a dependent. But when the daughter died, the insurer denied the plaintiff’s claim. Citing the Supreme Court’s 2011 decision in CIGNA Corp. v. Amara, the Fourth U.S. Circuit Court of Appeals held that the “other equitable relief” available to the plaintiff under Section 502(a)(3) of ERISA should include a monetary recovery equal to the amount that would have been due under the terms of a plan, had the daughter satisfied the plan’s definition of dependent child at the time of her death. In so doing, the Fourth Circuit became the first federal appellate court to reverse its own pre-Amara rejection of such a remedy under Section 502(a)(3).